Billionaire Miner Fights Rivals to Halt Digs on His Ranch

By Elisabeth Behrmann and Joe Schneider -
Feb 18, 2013

Andrew Forrest, Australia’s richest man who made his fortune digging up iron ore, is fighting bids to exploit the mineral wealth under his own half-a-million acre family ranch in the nation’s remote northwest outback.

Forrest, 51, founder and executive chairman of Fortescue Metals Group Ltd., the biggest seller of high-yield debt in the mining industry, sued to block attempts to search for uranium on his Minderoo ranch and last month failed in a bid to halt sand mining on the property. It was established in 1878 by his great great uncle, Sir John Forrest, first premier of the state of Western Australia, and his brothers Alexander and David.

A decade-long mining boom in Australia, the world’s biggest shipper of iron ore and coal, is set to earn the nation $189 billion this fiscal year. Forrest, who’s amassed a $5.7 billion fortune supplying China’s steel mills, according to the Bloomberg Billionaires Index, is almost two years into what are likely to become even more protracted legal proceedings over the ranch, almost double the size of New York City.

“In Australia, by law, you only own the top meter, everything underneath, that is owned by the people of Australia,” Peter Strachan, a resources analyst at Perth-based StockAnalysis, said in a phone interview. “If someone puts in a request to explore on your land, you have to deal with that and make sure you’re compensated for access.”

Court Issue

Groups seeking access to private land in Western Australia must seek approval of the Warden’s Court, which deals with disputes over and applications for mining leases, and negotiate compensation with the owner. Warden Stephen Wilson in a Jan. 22 ruling described one of Forrest’s proposed development conditions for sand mining on his property as “outrageous,” suggesting he was seeking “dictatorial power.”

The Australian system of public ownership of mineral resources and separation of mineral rights from surface land rights isn’t universal. For example, significant private ownership of minerals occurs in countries such as the U.S., the U.K. and Canada.

Wilson rejected objections filed by Forrest’s private company Forrest & Forrest Pty to the sand-mining venture at Minderoo proposed by closely held Yarri Mining Pty. Yarri plans to use the sand in the construction of natural gas projects being developed in the state by BHP Billiton Ltd., the world’s biggest mining company, and Chevron Corp., the third-largest oil producer by market value, according to the ruling.

‘Judge, Enforcer’

One of Forrest’s proposed conditions was an annual payment of a performance guarantee by Yarri of at least A$200,000 ($207,000), Wilson said in the ruling. “The proposed condition appears to be an attempt to create some form of dictatorial power that allows it to act as the investigator, prosecutor, judge and enforcer of the provisions of the Mining Act when it has no power to do so,” the warden said.

Forrest’s private company also argued against the mining sand application, partly on the grounds that machinery noise may scare his cattle on the 556,185-acre (225,000-hectare) ranch. It’s located in the Pilbara, a 193,000-square-mile desert arcing into the Indian Ocean that is home to Australia’s and Fortescue’s iron ore mines that have driven the nation’s mining boom. Yarri proposes to use only about 348 acres for sand production, about 0.06 percent of the total area, according to the ruling.

“Forrest & Forrest is disappointed at the Warden’s decision to allow sand mining by Yarri Mining within the historical and environmentally fragile parts of Minderoo pastoral station,” the company said in an e-mail. Forrest can appeal the decision to the Environmental Resources and Development Court or ask Western Australia’s Mines Minister Norman Moore directly to overturn the ruling.

Second Front

Forrest is also fighting on a second legal front. Cauldron Energy Ltd., chaired by another mining entrepreneur, Tony Sage, applied for exploration licenses over some of Minderoo on April 4 for its Yanrey uranium project. Forrest & Forrest filed objections on May 8. A hearing date hasn’t been set yet.

Holders of other pastoral leases in the area haven’t objected to Cauldron’s application, Colin Jacoby, a spokesman for the company, said in an e-mail. The company on Feb. 7 boosted the uranium resource at Yanrey fourfold to 15.7 million pounds. Sage is also chairman of Cape Lambert Resources Ltd., an iron ore explorer in which Evraz Group SA, whose controlling shareholders include Russian billionaire Roman Abramovich, once had a 19 percent stake.

Another Twist

In another twist, Fortescue Metals itself has applied to explore for minerals at Minderoo and holds six pending applications, according to an e-mail from the Western Australia’s Department of Mines. Forrest & Forrest withdrew its initial objections to those applications, the department said.

Key to Fortescue’s growth plans is its tenement footprint in the Pilbara, Forrest said in the company’s 2011 annual report. Fortescue, which has climbed 25 percent in the past six months, fell 1.9 percent to A$5.13 at the close of trading in Sydney. The company is Australia’s third-largest iron ore exporter behind Rio Tinto Group and BHP, has a tenement area of 85,000 square kilometers, according to the report.

“It served them very well in the past to get their feet on large tracts of land to do the geology properly,” said StockAnalysis’ Strachan. “It’s just interesting that the company he is a major shareholder of and chairman of was wanting to take a mining lease over an area he has, and he objected to it. I would have thought it’s all arm’s length.”

Fortescue has $7.04 billion of bonds outstanding, more than any other mining company with a junk debt rating from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, according to data compiled by Bloomberg. Non-investment grade bonds, also known as high-yield or junk, are rated below BBB- at S&P and Fitch, and the equivalent Baa3 at Moody’s.

Buy Back the Ranch

Forrest has close emotional ties to Minderoo as his father Donald had to sell the ranch in 1998 because of drought and mounting debt. It wasn’t until after founding Fortescue, which made its first iron ore shipment in 2008, that Forrest was able to buy the ranch back for A$12 million in 2009.

Forrest started his education there through a shortwave radio program called “School of the Air” and later worked on the property, about 715 miles (1,150 kilometers) north of Perth, the Western Australian state capital, as a jackeroo, or cowboy.

“Andrew has a long history of jackarooeing and working with the Aboriginal people in that part of the country,” said Strachan. “He doesn’t want to risk that some of it would be spoilt by mining gravel for the foundation of an LNG plant.”